Whole life insurance and its investment component
Whole life insurance is a serious alternative to such financial instruments designed to save your money, like a deposit or an investment fund.
However, despite the optimism of the insurers themselves, which forced high-ranking representatives of this market to talk about the great prospects for endowment insurance, everything went a little differently in the first post-crisis years.
Life insurance suffered significantly during the crisis due to the uncertainty of economic prospects and the decline in effective demand. At the end of last year, the life insurance market collected almost 20% less than a year earlier. Life insurance premiums fell 11%.
The life insurance companies collect the most premiums on endowment life insurance.
The main problem for the life insurance market will be the lack of customer confidence in long-term funded financial products.
As the history of the development of endowment insurance shows, after the crisis, at least 5 years of stable growth of the financial system must pass before consumer confidence in it returns to a sufficiently high level. So, in the next few years, you should not expect an explosive growth in endowment life insurance.
Experts note that this year will be the year of developing the right relationship between banks and life insurance companies , as well as approaches to customers and product development. In short, the insurers will do everything for us to bring them money. But is it worth it?
When people talk about accumulative insurance, they mean, as a rule, whole life insurance or pension insurance. The latter species is still relatively poorly distributed, although officials are actively working to change the state of affairs.
While buying a health insurance policy for protection against cancer here are the main factors you should consider. Health insurers can no longer charge more or deny insurance coverage to you or your child because of a pre-existing health condition like asthma, diabetes, or cancer. They cannot limit benefits for that condition either. Once you have insurance, they can’t refuse to cover treatment for your pre-existing condition.
Another thing is life insurance
This type includes all types of insurance, where the object of insurance is the life of a person. But since in practice it is impossible to determine the value of a person’s life, financial companies are guided by the client’s income. So it turns out that the object of protection is not so much the life and health of the insured as his income. According to the theory, on average, the amount of insurance protection ranges from 3 to 10 of the client’s annual income. However, there are also more exotic proposals.
Such insurance contracts are concluded for a period of at least one year. It should be borne in mind that a distinction is made between risk and endowment life insurance. In risk (classic) insurance, the client’s money goes to cover the risk and is not returned at the end of the insurance period, so we will not recall more about this type of insurance in this material.
Another thing is life insurance with savings
This type of insurance combines two functions at once: savings and risk. A classic example is a combination of death and survival insurance. The same insurance “until the age of majority”, which, as the Russian Federal Statistics Service assures, right on the eve of the collapse of the Soviet Gosstrakh, and indeed the entire Union, was used by every fifth family.
Such insurance is a combination of an investment fund and risk insurance. Part of the client’s money is used to cover insurance risks, while the other part is invested in low-income, but reliable business areas and brings investment interest. In case of survival, at the end of the insurance period, the client receives the invested money back along with interest.
Moreover, in modern practice, for example, in Britain and the USA, in companies, risk payments are not even deducted from the funded part.
Among the risks that are included in a life insurance contract, there is insurance against an accident, against disability, against a disease (for example, cancer health insurance).
Many critical illness insurance plans which are also defined benefit plans also cover various types of cancers. However, a cancer special plan may have the edge here.
A cancer care policy is designed to specifically address the medical requirements related to cancer treatment only, whereas a critical illness plan with cancer coverage caters to listed chronic conditions and critical illnesses, cancer being one of them.
As a result, the insurer parted with the money in the event that the insured has reached a certain age, fell ill or died.
The facts “for” include the minimum guaranteed income, now it is 4% per annum. Everything else depends on the effectiveness of the company’s investment strategy. On average, over the past year, insurers provided clients with a yield of 12-16% per annum in national currency. Companies do not have the right to voice the profitability for the future, and in informal conversations, the forecasts are completely contradictory, from the “basic” 4% to 20-25% profitability.
According to the legislation, the portfolios of “life” insurers can consist of deposits up to 50%, bonds – up to 40%, stocks – up to 30%, and government bonds – up to 10%. Taking into account that companies tend to invest no more than 5% even in the most reliable securities on the stock market, it is not at all clear how insurers can increase their profitability. Therefore, we can assume that the final yield at the end of the year in hryvnia will differ little from last year – the same 10-15%.
But do not forget that this is the average for the market, and the profitability of each particular company is the work of this particular company. Naturally, not everyone earns even these 15-16% per annum.
Moreover, among the market leaders there are companies that do not rise above 5-8% per year, justifying themselves with the absolute safety of their investments.
We should not forget about the possible bankruptcy of the company; there is no fund for guaranteeing deposits of individuals on the insurance market yet. So it turns out that even the insurance protection provided by the policy in the event of the death of the insured does not justify the difference in profitability with a bank deposit. And if we also add the inflation index for the period of “investment”, then the result generally leaves much to be desired.
Now the most curious. The frequency of payment of fees. Usually the policyholder decides how to pay. But there is one unpleasant subtlety here. Insurers themselves offer to pay money once a year. Otherwise, with monthly payments, the total amount of the annual insurance premium increases by a certain percentage – from 3 to 5.
By the way, if there is a desire to index the final income (increase the sum insured by the size of the inflation index), which is often recommended by the insurers themselves, then in practice the client’s insurance premium simply increases by this index.
And if suddenly the client decides to terminate the contract, as, for example, in the case of a deposit? It wasn’t there. Almost always, the redemption amount (the amount in case of early termination of insurance) is formed, so, after three years of the contract, and the termination of the policy before the agreed period is fraught with a complete loss of invested funds.
But this is not all unpleasant surprises. The redemption amount does not guarantee the return of all contributions paid. The later the policy is terminated, the more you can get your hands on, but you can get 100% only after the period specified in the contract.
In a number of companies, it is still customary to write in small print in the policy that upon termination of the contract, the insured also reimburses the costs of doing business (from 3-10%), settlement and cash services, etc.
Yes, do not forget about taxation, both in the case of receiving investment income, and in case of its early termination. Note that bank deposits do not have such an unpleasant moment.
Apparently, today endowment insurance can be of interest only to those who are critically important to diversify their investment flows, or those who seriously need to protect life and health. For the rest, we recommend waiting for stabilization of the macroeconomic situation not only in the country, but also in the region, as well as more democratic conditions from the insurance companies themselves.
Author: Nataly Kramer
